Chapter 6: International Trade Theory

IDENTIFICATION

1. A circumstance where a government does not endeavor to impact through quantities or

obligations what its citizens can purchase from another nation or what they can deliver and
pitch to another nation. ANSWER: FREE TRADE
2. Export more than you import. ANSWER: TRADE SURPLUS
3. Deliver an item when it is more proficient than some other country in producing it. ANSWER:
ABSOLUTE ADVANTAGE
4. A firm ought to disperse its different profitable exercises to those nations where they can be
performed generally effectively. ANSWER: LOCATION IMPLICATIONS
5. Refer to the nature of home demand for the industry’s product or service. ANSWER: DEMAND
CONDITIONS
6. One in which a gain by one nation brings about a misfortune by another. ANSWER: ZERO-SUM
GAME
7. Ghana and Cambodia, assume that Ghana is more effective at creating both coffee beans and
rice. Assume that in Ghana it takes 11 assets to deliver one ton of coffee beans, and 13 and 43%
assets to create one ton of rice. Ghana could deliver 30 tons of coffee beans and no rice, 15 tons
of rice and no coffee beans, or some blend of the two. Presently, assume that in South Korea it
takes 50 assets to deliver one ton of cocoa and 20 assets to create one ton of rice. South Korea
could utilize every one of its assets to deliver 8 tons of coffee beans and no rice, 10 tons of rice
and coffee beans, or some blend of the two. As should be obvious, Ghana has
________________ in the creation of the two items. ANSWER: ABSOLUTE ADVANTAGE
8. The ideal area to the world to create an item changes as the market for the item develops.
ANSWER: PRODUCT LIFE CYCLE
9. Comparative advantage arises from differences in national factor endowments. ANSWER:
HECKSCHER-OHLIN THEORY
10. The trade theory that says countries should concentrate production on those products using
their most abundant production factors is the ____________. ANSWER: FACTOR PROPORTIONS
THEORY

TRUE OR FALSE

1. Opening a country to trade could increase a country's stock of resources as increased supplies
become available from abroad the efficiency of resource utilization and so free up resources for
other uses economic growth. ANSWER: TRUE
2. Ghana and South Korea, suppose that Ghana is more efficient at producing both cocoa and rice.
Suppose that in Ghana it takes 10 resources to produce one ton of cocoa, and 13 and one third
resources to produce one ton of rice. Ghana could produce 20 tons of cocoa and no rice, 15 tons
of rice and no cocoa, or some combination of the two. Now, suppose that in South Korea it takes
 40 resources to produce one ton of cocoa and 20 resources to produce one ton of rice. South
Korea could use all its resources to produce 5 tons of cocoa and no rice, 10 tons of rice and no
cocoa, or some combination of the two. It’s still beneficial for Ghana to trade because it has an
absolute advantage in the production of cocoa. ANSWER: FALSE
3. One way that developed countries specialize to gain acquired advantages is by emphasizing
production in natural resource endowments. ANSWER: FALSE
4. As indicated by the diamond of national preferred standpoint hypothesis, the household
presence of every one of the four conditions best clarifies the situation of an item in its life
cycle. ANSWER: FALSE
5. Countries with large land areas are generally less dependent on trade than countries with small
land areas. ANSWER: TRUE

Multiple Choice

1. Porter’s diamond of competitive advantage includes all the following except: C

a. Factor endowments
b. Demand conditions
c. First-mover advantages
d. Firm strategy, structure, and rivalry
2. Economies of scale and first mover advantages are important to which trade theory? C
a. Mercantilism
b. Product life cycle
c. New trade theory
d. Comparative advantage
3. Which of the following is the LEAST likely result of outward migration? B
a. Emigrants remit capital used to start Businesses in their home countries.
b. Nations receive more foreign aid.
c. Nations lose highly educated and productive workers. d. Countries receive remittances from
emigrants.
4. All of the following theories advocated free trade except: A
a. Mercantilism
b. Comparative Advantage
c. Absolute Advantage
d. Heckscher-Ohlin

5. Neomercantilism describes the approach of countries that try to run a favorable balance
of trade to ______________. B
a. Build up gold reserves
b. Achieve a social or political objective
c. Lower their rates of inflation
d. buy raw materials more cheaply